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Fuel price fluctuation affects Cathay Pacific
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Cathay Pacific Airways, Hong Kong's largest carrier, will report unrealized fuel-hedging losses of HK$7.6 billion (US$980 million) after fuel prices tumbled 70 percent in less than 6 months.

Fall in fuel price both good and bad news

Fair-value hedging losses almost tripled from October 31 to December 31, according to a Hong Kong stock exchange statement released by the carrier yesterday. It will also book a cash loss of about HK$300 million from hedging contracts exercised last year.

Fuel-hedging losses have compounded the effect of slowing demand on airlines' earnings, as the global recession damps air travel. Cathay Pacific's advance bookings for the first quarter of this year are "markedly down" from a year earlier, it said.

The airline also reiterated last year's earnings will be "disappointing."

But the drop in fuel prices has also helped carriers by reducing operating costs. Cathay's fuel costs last year would have been HK$7.9 billion higher had fuel prices stayed at their July peak.

Carriers worldwide have suffered hedging losses after agreeing contracts in anticipation of continued increases in fuel prices. Jet-fuel prices doubled in a year to a record in July, before tumbling in line with declining oil prices.

Cathay Pacific's hedging losses are heightened by Hong Kong accounting regulations, which force it to report potential future cash losses.

In other jurisdictions, airlines only need to report losses when contracts are actually exercised, which spreads out the effect, the Hong Kong-based airline said.

(Shanghai Daily January 8, 2009)

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